Question

During 20x5, the Ibti Construction Company obtained a $15 million contract to build a bridge. The costs incurred, estimated costs to complete and the billings made on the contract for the period 20x5 – 20x6 are as follows:

20x5 20x6 Costs incurred during the year $3,000,000 $5,000,000 Expected costs to complete 9,000,000 6,000,000 Billings 7,500,000 -

Ibti uses the percentage of completion method. Costs incurred relative to total project costs are used to measure the percentage of completion at the end of the year.

Required –

For each of the years 20x5 and 20x6, calculate the following:

•           revenues realized,

•           costs realized,

•           profit or loss realized, and

•           the amount recognized for the project on Ibti’s Statement of Financial Position at the end of each year.

Answer 1

	2005	2006
Cost incurred during the year	3,000,000	5,000,000
Expected Cost to complete	9,000,000	6,000,000
Billings	7,500,000
Contract Value	15,000,000	15,000,000
Total Cost Incurred	3,000,000	8,000,000
Total Project Cost	12,000,000	14,000,000
Percentage Completed	25.00%	57.14%
Balance to be recognised		32.14%
Revenue Realised	3,750,000	4,821,429
Cost Realised	3,000,000	5,000,000
Profit or Loss Realised	750,000	-178,571
Amount recognised for the project on Ibti’s Statement of Financial Position at the end of each year.
Current Liabilities
Progress Billings - Excess Billings over Cost	4,500,000
Current Assets
Construction in Progress - Excess Cost over Billings		500,000